Morgans Hotel Group Reports Third Quarter 2014 Results

NEW YORK, Nov. 7, 2014 (hospitalitybusinessnews.com) — Morgans Hotel Group Co.  today reported financial results for the quarter ended September 30, 2014.

Highlights

  • Adjusted EBITDA was $11.0 million in the third quarter of 2014. Excluding a termination fee in 2013 and a litigation settlement related to The Light Group (“TLG”) in 2014, Adjusted EBITDA increased 15.2% over the same period in 2013 primarily driven by a 16.1% increase in EBITDA at Owned Hotels.
  • Revenue per available room (“RevPAR”) for System-Wide Comparable Hotels increased by 3.7% on a year-over-year basis during the third quarter of 2014.
  • Operating margins at the Company’s Owned Hotels and leased food and beverage operations increased approximately 425 basis points during the third quarter of 2014 as compared to the same period in 2013, primarily as a result of cost saving initiatives implemented in 2014.
  • In early September 2014, the Company’s second Delano-branded hotel, opened at Mandalay Bay in Las Vegas. Delano Las Vegas, a 1,117 all-suite luxury hotel, is the Company’s first licensed hotel and is operated by affiliates of MGM Resorts International (“MGM”).
  • On September 30, 2014, the Company expanded the Mondrian brand internationally with the opening of Mondrian London, a 359-room luxury hotel located on London’s South Bank.
  • The Company added 10 guestrooms at Hudson during the third quarter of 2014 and has an additional two guestrooms under conversion which are expected to open in the fourth quarter of 2014. The Company currently has 60 single room occupancy units (“SROs”) remaining at Hudson, together with other space in the hotel, which it intends to convert into guest rooms in the future.

Jason T. Kalisman, Interim Chief Executive Officer, stated, “We continued to make significant progress during the third quarter to extend our brands by opening two new spectacular hotels, the Delano Las Vegas and the Mondrian London.  We believe our mix of unique and valuable properties and expanded geographic footprint, combined with our ongoing commitment to operational excellence, provides us with greater stability and a stronger platform from which we can grow.  As a result, we are well positioned to capitalize on future opportunities and look forward to building on the momentum of the first three quarters as we complete what has been a transformative year for the Company.”

Third Quarter 2014 Operating Results

Adjusted EBITDA for the third quarter of 2014 was $11.0 million, a 6.4% decrease over the same period in 2013.  Excluding a termination fee related to Ames in Boston of $0.9 million received in 2013 and a $1.5 million litigation settlement related to TLG paid in 2014, Adjusted EBITDA increased 15.2% in the third quarter of 2014 over the same period in 2013.  During the third quarter of 2014, the Company revised its definition of Adjusted EBITDA to include the operating results of Clift, an owned hotel, as discussed further below in “Non-GAAP Financial Measures.” Excluding Clift and the previously mentioned one-time items, Adjusted EBITDA increased 17.9% in the third quarter of 2014 as compared to the same period in 2013.

The Company’s Owned Hotels experienced increases in EBITDA during the third quarter of 2014 as compared to the same period in 2013 due to a 35.6% increase at Delano South Beach, a 15.9% increase at Hudson, and a 7.3% increase at Clift.  The increases were primarily due to operating efficiencies.

RevPAR at System-Wide Comparable Hotels, all of which are located in the United States, increased by 3.7% in the third quarter of 2014 from the comparable period in 2013, driven by a 1.8% increase in occupancy and 1.9% increase in average daily rate (“ADR”).

RevPAR from System-Wide Comparable Hotels in New York increased 1.5% in the third quarter of 2014 over the same period in 2013, due to an increase in occupancy of 1.6% to 92.7%.  RevPAR at Hudson increased by 1.3% during the third quarter of 2014 as compared to the same period in 2013.  Occupancy at Hudson increased by 1.8% to 94.9% year-over-year reflecting strong demand.  ADR at Hudson declined 0.5% primarily as a result of an increase in competitive room supply, as a nearby competitor was undergoing a renovation in 2013 that was completed in 2014.  Food and beverage revenues at Hudson were up 7.8%, reflecting the continued success of Hudson Common.  Mondrian SoHo’s RevPAR increased by 4.6% during the third quarter of 2014 as compared to the same period in 2013, primarily due to increased market share.

RevPAR from System-Wide Comparable Hotels in Miami was flat in the third quarter of 2014 as compared to the same period in 2013.  Delano South Beach experienced a RevPAR decrease of 6.0% during the third quarter of 2014 as compared to the same period in 2013 primarily due to the World Cup’s impact on European and Latin American travel in July and lower group business in August. The softness in July and August was partially offset by a strong RevPAR increase in September.

The Company’s System-Wide Comparable Hotels on the West Coast generated 11.2% RevPAR growth in the third quarter of 2014 as compared to the same period in 2013, with a 16.8% RevPAR increase at Mondrian Los Angeles and a 7.6% RevPAR increase at Clift.

The Company’s managed hotels in London, Sanderson and St Martins Lane, are non-comparable due to a major room and common area renovation that began in the first quarter of 2014 resulting in a decrease in RevPAR of approximately 8.8% in average dollars due to rooms being out of service during the third quarter of 2014.  The majority of the guestroom renovations at Sanderson are complete and renovation on the remaining guestrooms at St Martins Lane will resume in the first quarter of 2015.

Management fees decreased $1.7 million, or 24.4%, during the third quarter of 2014 as compared to the same period in 2013.  Food and beverage management fees decreased primarily due to revisions in the management fee structure with MGM effective January 1, 2014 to a more incentive based model.  Additionally, the Company received a termination fee related to Ames in Boston during the third quarter of 2013.

Hotel operating expenses decreased by 7.3% due primarily to property-level cost-saving initiatives implemented in May 2014.  As a result, operating margins at the Company’s Owned Hotels and leased food and beverage operations increased approximately 425 basis points during the third quarter of 2014 as compared to the same period in 2013.

Corporate expenses, excluding stock compensation expense, increased by $1.3 million, or 23.3%, during the third quarter of 2014 as compared to the same period in 2013. This increase was largely due to a $1.5 million litigation settlement related to TLG and higher public company legal expenses, which was partially offset by cost savings from the corporate workforce reduction in March 2014.

Interest expense increased by $1.4 million, or 12.1%, during the third quarter of 2014 as compared to the same period in 2013, primarily due to the new financing secured by Hudson and Delano South Beach in February 2014, which resulted in a larger debt balance outstanding during the third quarter of 2014 as compared to the third quarter of 2013.

The Company recorded a net loss of $10.1 million for the third quarter of 2014 compared to a net loss of $10.3 million for the third quarter of 2013 as operational efficiencies in 2014 offset the impact of one-time items in 2013 and 2014.

Balance Sheet and Liquidity

The Company’s total consolidated debt at September 30, 2014, including the Company’s capital lease at Clift, was $673.6 million.

At September 30, 2014, the Company had approximately $96.3 million in cash and cash equivalents.

During the third quarter of 2014, the Company repurchased $35.4 million of outstanding Convertible Notes at a discount of approximately $0.1 million plus accrued interest.   In October 2014, the Company’s remaining outstanding Convertible Notes of approximately $49.1 million matured and were repaid with cash on hand.  Also in October 2014, the Company funded its Mondrian London key money obligation of £9.4 million, or approximately $15.2 million.

As of September 30, 2014, the Company had approximately $373.0 million of remaining Federal tax net operating loss carryforwards to offset future income, including gains on future asset sales.

Development

The Company opened two high-profile hotels in the third quarter of 2014.  Delano Las Vegas, a 1,117-room hotel at Mandalay Bay, opened in early September and is operated under a license agreement with MGM.  This all-suite hotel features a unique sand-meets-water design and blends signature elements of Delano South Beach with the distinct energy only found on the Las Vegas Strip.  Mondrian London, a 359-room hotel operated under a long-term management agreement, opened on September 30, 2014.  Mondrian London fuses inventive food, beverage and entertainment offerings with groundbreaking design to produce a vibrant hub on London’s South Bank. This is the first Mondrian-branded hotel outside the United States, representing the evolution and expansion of the Mondrian brand. The hotel offers guests and locals an urban boutique hotel experience that is youthful, energetic, and aspirational, while remaining distinctly authentic to its South Bank London location.

Additionally, the Company has a franchise agreement for 10 Karakoy, a 71-room Morgans Original in Istanbul, Turkey which is expected to open in November 2014 and a management agreement for a Mondrian in Doha, Qatar which is expected to open in the second quarter of 2015.

Late in the third quarter of 2014, the Company signed a letter of intent (“LOI”) for a new hotel in the United States.   The Company also has two other LOIs for hotels in the Middle East, which we believe could be converted into management agreements in the near-term.

In September 2014, the Company and hotel owner mutually agreed to terminate the Delano Moscow management agreement.  As a result, the Company was relieved of its $10.0 million key money obligation, of which $3.0 million had already been funded and was refunded back to the Company in September 2014.  The Company was also relieved of its $8.0 million potential cash flow guarantee.

During the third quarter of 2014, the Company converted eight additional SROs, together with other space, into 10 new guest rooms and anticipates the completion of two additional rooms in the fourth quarter of 2014.  The total cost of these 12 new guestrooms was approximately $2.3 million. The Company currently has 60 SROs remaining at Hudson, together with other space in the hotel, which it intends to convert into guest rooms in the future.

 

Income Statements

(In thousands, except per share amounts)

Three Months

Nine Months

Ended September 30, 

Ended September 30, 

2014

2013

2014

2013

Revenues :

Rooms

$       30,648

$       29,950

$       90,760

$          87,303

Food & beverage

18,252

20,214

61,177

59,713

Other hotel 

1,347

1,142

4,132

3,384

Total hotel revenues

50,247

51,306

156,069

150,400

Management fee-related parties and other income

5,259

6,956

16,509

21,220

Total revenues

55,506

58,262

172,578

171,620

Operating Costs and Expenses :

Rooms

9,357

9,253

27,896

27,298

Food & beverage

14,266

15,827

44,834

44,335

Other departmental

800

806

2,369

2,422

Hotel selling, general and administrative

9,702

11,046

31,404

32,688

Property taxes, insurance and other

3,908

4,080

12,154

12,641

Total hotel operating expenses

38,033

41,012

118,657

119,384

Corporate expenses :

Stock based compensation

348

1,255

3,096

3,552

Other

6,778

5,499

17,931

18,917

Depreciation and amortization

6,811

7,114

21,894

20,535

Restructuring and disposal costs

1,145

1,799

12,369

7,951

Development costs

564

971

3,928

2,368

Impairment loss on receivables and other assets from managed hotel and unconsolidated joint venture

167

5,942

Total operating costs and expenses

53,679

57,817

177,875

178,649

Operating income (loss)

1,827

445

(5,297)

(7,029)

Interest expense, net

12,984

11,585

41,917

34,434

Equity in (income) loss of unconsolidated joint ventures

(3)

278

(7)

773

Gain on asset sales

(2,005)

(2,005)

(6,015)

(6,015)

Other non-operating expenses 

824

810

1,950

1,289

Loss before income tax expense

(9,973)

(10,223)

(43,142)

(37,510)

Income tax expense 

122

105

351

541

Net loss 

(10,095)

(10,328)

(43,493)

(38,051)

Net (income) loss attributable to noncontrolling interest

(48)

(504)

298

Net loss attributable to Morgans Hotel Group 

$      (10,143)

$      (10,328)

$      (43,997)

$         (37,753)

Preferred stock dividends and accretion

(3,594)

(4,037)

(11,948)

(9,976)

Net loss attributable to common stockholders

$      (13,737)

$      (14,365)

$      (55,945)

$         (47,729)

Loss  per share:

Basic and diluted attributable to common stockholders

$          (0.40)

$          (0.44)

$         (1.64)

$             (1.46)

Weighted average common shares outstanding – basic and diluted

34,267

32,693

34,047

32,590

 

Selected Hotel Operating Statistics 

( In Actual Dollars)

( In Constant Dollars, if different)

( In Actual Dollars)

( In Constant Dollars, if different)

Three Months

Three Months

Nine Months

Nine Months

Ended September 30,

%

Ended September 30,

%

Ended September 30,

%

Ended September 30,

%

2014

2013

Change

2014

2013

Change

2014

2013

Change

2014

2013

Change

BY REGION

Northeast Comparable Hotels (1)

Occupancy

92.7%

91.2%

1.6%

89.2%

87.6%

1.8%

ADR

$   264.94

$   265.23

-0.1%

$   256.36

$   257.31

-0.4%

RevPAR

$   245.60

$   241.89

1.5%

$   228.67

$   225.40

1.5%

West Coast Comparable Hotels (2)

Occupancy

94.3%

90.5%

4.2%

89.8%

86.4%

3.9%

ADR

$   287.45

$   269.25

6.8%

$   276.69

$   259.63

6.6%

RevPAR

$   271.07

$   243.67

11.2%

$   248.47

$   224.32

10.8%

Miami Comparable Hotels (3)

Occupancy

60.1%

60.8%

-1.2%

72.8%

71.5%

1.8%

ADR

$   258.03

$   254.92

1.2%

$   346.92

$   337.88

2.7%

RevPAR

$   155.08

$   154.99

0.1%

$   252.56

$   241.58

4.5%

United States Comparable Hotels (4)

Occupancy

84.6%

83.1%

1.8%

85.1%

83.1%

2.4%

ADR

$   269.25

$   264.22

1.9%

$   281.20

$   276.01

1.9%

RevPAR

$   227.79

$   219.57

3.7%

$   239.30

$   229.36

4.3%

International Comparable Hotels (5)

Occupancy

ADR

RevPAR

System-wide Comparable Hotels  (6)

Occupancy

84.6%

83.1%

1.8%

84.6%

83.1%

1.8%

85.1%

83.1%

2.4%

85.1%

83.1%

2.4%

ADR

$   269.25

$   264.22

1.9%

$ 269.25

$    264.22

1.9%

$   281.20

$   276.01

1.9%

$ 281.20

$    276.01

1.9%

RevPAR

$   227.79

$   219.57

3.7%

$ 227.79

$    219.57

3.7%

$   239.30

$   229.36

4.3%

$ 239.30

$    229.36

4.3%

 

(1)

Northeast Comparable Hotels for the periods ended September 30, 2014 and 2013 consist of Hudson, Morgans, Royalton and Mondrian SoHo in New York.  Ames in Boston is non-comparable during the periods presented as the hotel was no longer managed by the Company effective July 17, 2013.

(2)

West Coast Comparable Hotels for the periods ended September 30, 2014 and 2013 consist of Mondrian Los Angeles and Clift in San Francisco.  Delano Las Vegas, which opened in September 2014, is non-comparable as this hotel is subject to a license agreement and managed by affiliates of MGM Resorts International (“MGM”). 

(3)

Miami Comparable Hotels for the periods ended September 30, 2014 and 2013 consist of Delano South Beach, Mondrian South Beach and Shore Club in Miami Beach, Florida.  

(4)

United States Comparable Hotels for the periods ended September 30, 2014 and 2013 consist of Hudson, Morgans, Royalton, Mondrian SoHo, Mondrian Los Angeles, Clift, Delano South Beach, Mondrian South Beach and Shore Club.  Ames is non-comparable during the periods presented as the hotel was no longer managed by the Company effective  July 17, 2013, and Delano Las Vegas, which opened in September 2014, is non-comparable as this hotel is subject to a license agreement and managed by affiliates of MGM.

(5)

The Company has no International Comparable Hotels for the periods ended September 30, 2014 and 2013.  Sanderson and St Martins Lane in London  are non-comparable, as they both were under major renovation during the first three quarters of 2014.  Mondrian London, which opened on September 30, 2014, is also non-comparable.  Delano Marrakech is non-comparable for the periods presented as the hotel was no longer managed by the Company effective November 12, 2013.  Additionally, Hotel Las Palapas in Mexico is non-comparable, as this hotel is not a Morgans Hotel Group branded hotel and as of April 1, 2013, was no longer managed by the Company.  

(6)

System-Wide Comparable Hotels include all Morgans Hotel Group branded hotels operated by the Company, except for hotels added or under major renovation during the current or the prior year, development projects and discontinued operations.  System-Wide Comparable Hotels for the periods ended September 30, 2014 and 2013 exclude Sanderson and St Martins Lane in London, which both were under renovations during the first three quarters of 2014, Delano Las Vegas, which opened in September 2014, is non-comparable as this hotel is subject to a license agreement and managed by affiliates of MGM, Mondrian London, which opened on September 30, 2014, Ames, which the Company no longer manages effective July 17, 2013, Delano Marrakech, which the Company no longer manages effective November 12, 2013, and Hotel Las Palapas, which is not a Morgans Hotel Group branded hotel, and as of April 1, 2013, was no longer managed by the Company.

 

Selected Hotel Operating Statistics

( In Actual Dollars)

( In Constant Dollars, if different)

( In Actual Dollars)

( In Constant Dollars, if different)

Three Months

Three Months

Nine Months

Nine Months

Ended September 30,

%

Ended September 30,

%

Ended September 30,

%

Ended September 30,

%

2014

2013

Change

2014

2013

Change

2014

2013

Change

2014

2013

Change

BY OWNERSHIP

Owned Comparable Hotels (1)

Occupancy

90.5%

88.5%

2.3%

88.4%

85.3%

3.6%

ADR

$   256.40

$   256.90

-0.2%

$   262.37

$   261.71

0.3%

RevPAR

$   232.04

$   227.36

2.1%

$   231.94

$   223.24

3.9%

Joint Venture Comparable Hotels (2)

Occupancy

78.6%

76.4%

2.9%

82.7%

82.5%

0.2%

ADR

$   290.06

$   279.00

4.0%

$   305.71

$   293.15

4.3%

RevPAR

$   227.99

$   213.16

7.0%

$   252.82

$   241.85

4.5%

Managed Comparable Hotels (3)

Occupancy

77.8%

77.6%

0.3%

80.7%

79.7%

1.3%

ADR

$   283.61

$   270.27

4.9%

$   302.70

$   292.28

3.6%

RevPAR

$   220.65

$   209.73

5.2%

$   244.28

$   232.95

4.9%

System-wide Comparable Hotels 

Occupancy

84.6%

83.1%

1.8%

84.6%

83.1%

1.8%

85.1%

83.1%

2.4%

85.1%

83.1%

2.4%

ADR

$   269.25

$   264.22

1.9%

$ 269.25

$    264.22

1.9%

$   281.20

$   276.01

1.9%

$ 281.20

$    276.01

1.9%

RevPAR

$   227.79

$   219.57

3.7%

$ 227.79

$    219.57

3.7%

$   239.30

$   229.36

4.3%

$ 239.30

$    229.36

4.3%

Owned Hotels

Hudson

Occupancy

94.9%

93.2%

1.8%

90.5%

88.0%

2.8%

ADR

$   232.50

$   233.71

-0.5%

$   221.46

$   225.96

-2.0%

RevPAR

$   220.64

$   217.82

1.3%

$   200.42

$   198.84

0.8%

Delano South Beach 

Occupancy

57.7%

59.8%

-3.5%

72.4%

68.4%

5.8%

ADR

$   391.87

$   402.10

-2.5%

$   503.70

$   508.83

-1.0%

RevPAR

$   226.11

$   240.46

-6.0%

$   364.68

$   348.04

4.8%

Clift

Occupancy

97.2%

92.4%

5.2%

91.9%

87.9%

4.6%

ADR

$   268.49

$   262.41

2.3%

$   257.06

$   244.73

5.0%

RevPAR

$   260.97

$   242.47

7.6%

$   236.24

$   215.12

9.8%

 

(1)

Owned Comparable Hotels for the periods ended September 30, 2014 and 2013 consist of Hudson, Delano South Beach, and Clift in San Francisco.  

(2)

Joint Venture Comparable Hotels for the periods ended September 30, 2014 and 2013 consist of Mondrian South Beach and Mondrian SoHo.  Ames is non-comparable for the periods presented as effective April 26, 2013, the Company entered into an agreement with its joint venture partner pursuant to which, among other things, the Company assigned its equity interests in the joint venture to its joint venture partner.  Prior to April 26, 2013, the Company owned Ames through an unconsolidated joint venture in which the Company held a minority interest ownership of approximately 31%.  Effective July 17, 2013, the Company no longer manages this hotel.  Shore Club is non-comparable for the periods presented as effective December 30, 2013, the Company no longer had a meaningful ownership interest in the hotel. Prior to December 30, 2013, the Company owned Shore Club through an unconsolidated joint venture in which the Company held a minority interest ownership of approximately 7%. The Company continues to manage Shore Club.

(3)

Managed Comparable Hotels for the periods ended September 30, 2014 and 2013 consist of Morgans, Royalton, Shore Club, and Mondrian Los Angeles.  Managed hotels that are non-comparable for the periods presented are Sanderson and St Martins Lane in London, which both were under renovations during the first three quarters of 2014, Mondrian London, which opened on September 30, 2014, Delano Marrakech, which was no longer managed by the Company effective November 12, 2013, Hotel Las Palapas, which is not a Morgans Hotel Group branded hotel and as of April 1, 2013, was no longer managed by the Company, and Ames, which was no longer managed by the Company effective  July 17, 2013.

 

Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA

The Company believes that EBITDA is a useful financial metric to assess its operating performance before the impact of investing and financing transactions and income taxes. It also facilitates comparison between the Company and its competitors. Given the significant investments that the Company and its joint ventures have made in the past in property and equipment, depreciation and amortization expense comprises a meaningful portion of our cost structure. The Company believes that EBITDA will provide investors with a useful tool for assessing the comparability between periods because it eliminates depreciation and amortization expense attributable to capital expenditures.

The Company’s management has historically used adjusted EBITDA (“Adjusted EBITDA”) when evaluating the operating performance for the entire Company as well as for individual properties or groups of properties because it believes the Company’s core business model is that of an owner and operator of hotels and food and beverage venues, and the inclusion or exclusion of certain items is necessary to provide the most accurate measure of on-going core operating results and to evaluate comparative results period over period.  As such, Adjusted EBITDA excludes other non-operating expense (income) that does not relate to the on-going performance of our assets.  The Company excludes the following items from EBITDA to arrive at Adjusted EBITDA:

  • Other non-operating expenses, such as costs associated with discontinued operations and previously owned hotels, both consolidated and unconsolidated, transaction costs related to business acquisitions, changes in the fair value of debt and equity instruments, miscellaneous litigation and settlement costs and other expenses that relate to the financing and investing activities of the Company;
  • Restructuring and disposal costs, which include expenses incurred related to the Company’s corporate restructuring initiatives, such as professional fees, litigation and settlement costs, executive terminations and severance costs related to such restructuring initiatives, including the March 2014 corporate office termination plan and proxy contests, and gains or losses on asset disposals as part of major renovation projects or restructuring;
  • Development costs, including transaction costs related to the acquisition or termination of projects, internal development payroll and other costs and pre-opening expenses incurred related to new concepts at existing hotel and the development of new hotels, and the write-off of abandoned development projects previously capitalized;
  • Impairment loss on development projects and hotels and receivables from unconsolidated joint ventures. To the extent that economic conditions do not continue to improve, the Company may incur additional non-cash impairment charges related to assets under development, wholly-owned assets, or our investments in joint ventures. The Company believes these adjustments are necessary to provide the most accurate measure of core operating results as a means to evaluate comparative results;
  • EBITDA related to hotels and food and beverage entities reported as discontinued operations to more accurately reflect the operating performance of assets in which the Company expects to have an ongoing direct or indirect ownership interest;
  • Stock-based compensation expense, as this is not necessarily an indication of the operating performance of the Company’s assets; and
  • Gains recognized on asset sales, as the Company believes that including them in Adjusted EBITDA is not consistent with reflecting the ongoing performance of its assets. In addition, the Company believes material gains or losses from the net book value of disposed assets is not particularly meaningful given that the depreciated asset value on which the gains are calculated often does not reflect market value of the assets.

 

The Company also makes an adjustment to EBITDA for hotels in which its percentage ownership interest has changed to facilitate period-over-period comparisons and to more accurately reflect the operating performance of assets based on its actual ownership.  In this respect, the Company’s method of calculating Adjusted EBITDA may change from prior quarters, and calculations of Adjusted EBITDA could continue to vary from quarter to quarter to reflect changing ownership interests.

The Company believes Adjusted EBITDA provides management and its investors with a more accurate financial metric by which to evaluate our performance as it eliminates the impact of costs incurred related to investing and financing transactions.  Internally, the Company’s management utilizes Adjusted EBITDA to measure the performance of its core on-going operations and is used extensively during its annual budgeting process.  Management also uses Adjusted EBITDA as a measure in determining the value of acquisitions, expansion opportunities, and dispositions and borrowing capacity.  Adjusted EBITDA is a key metric which management evaluates prior to execution of any strategic investing or financing opportunity.

The Company has historically reported Adjusted EBITDA to its investors and believes that this continued inclusion of Adjusted EBITDA provides consistency in its financial reporting and enables investors to perform more meaningful comparisons of past, present and future operating results and to evaluate the results of its core on-going operations.

The use of EBITDA and Adjusted EBITDA has certain limitations. The Company’s presentation of EBITDA and Adjusted EBITDA may be different from the presentation used by other companies and therefore comparability may be limited. Depreciation expense for various long-term assets, interest expense, income taxes and other items have been and will be incurred and are not reflected in the presentation of EBITDA or Adjusted EBITDA. Each of these items should also be considered in the overall evaluation of the Company’s results. Additionally, EBITDA and Adjusted EBITDA do not reflect capital expenditures and other investing activities and should not be considered as a measure of the Company’s liquidity. The Company compensates for these limitations by providing the relevant disclosure of its depreciation, interest and income tax expense, capital expenditures and other items in its reconciliations to its financial measures under U.S. GAAP and/or in its consolidated financial statements, all of which should be considered when evaluating its performance. The term EBITDA is not defined under U.S. GAAP and EBITDA is not a measure of net income, operating income, operating performance or liquidity presented in accordance with U.S. GAAP. In addition, EBITDA is impacted by reorganization of businesses and other restructuring-related charges. When assessing the Company’s operating performance, you should not consider this data in isolation, or as a substitute for the Company’s net income, operating income or any other operating performance measure that is calculated in accordance with U.S. GAAP.

A reconciliation of net loss, the most directly comparable U.S. GAAP measure, to EBITDA and Adjusted EBITDA for each of the respective periods indicated is as follows:

 

EBITDA Reconciliation

(In thousands)

Three Months

Nine Months

Ended September 30, 

Ended September 30, 

2014

2013

2014

2013

Net loss attributable to Morgans Hotel Group Co.

$           (10,143)

$          (10,328)

$           (43,997)

$          (37,753)

Interest expense, net

12,984

11,585

41,917

34,434

Income tax expense 

122

105

351

541

Depreciation and amortization expense

6,811

7,114

21,894

20,535

Proportionate share of interest expense

 from unconsolidated joint ventures

1,156

1,766

3,444

6,622

Proportionate share of depreciation expense

 from unconsolidated joint ventures

257

552

1,182

1,856

Net loss attributable to noncontrolling interest

(25)

(271)

(98)

(1,104)

Proportionate share of loss from unconsolidated joint

  ventures not recorded due to negative investment balances

(1,331)

(2,523)

(4,130)

(7,064)

EBITDA 

9,831

8,000

20,563

18,067

Other non operating expenses 

824

810

1,950

1,289

Other non operating expense from unconsolidated 

  joint ventures

263

725

1,481

1,457

Restructuring and disposal costs

1,145

1,799

12,369

7,951

Development costs

564

971

3,928

2,368

Impairment loss on receivables from managed hotels and unconsolidated joint venture

167

5,942

Stock based compensation expense

348

1,255

3,096

3,552

Gain on asset sales

(2,005)

(2,005)

(6,015)

(6,015)

Adjusted EBITDA 

$            10,970

$           11,722

$            37,372

$           34,611

 

Hotel EBITDA Analysis (1)

(In thousands, except percentages)

Three Months

Nine Months

 Ended September 30,

%

Ended September 30,

%

2014

2013

Change

2014

2013

Change

Hudson 

$      6,547

$      5,648

16%

$     13,907

$     12,607

10%

Delano South Beach  

1,745

1,287

36%

13,956

11,510

21%

Clift

2,915

2,717

7%

6,341

5,595

13%

Owned Comparable Hotels (2)

11,207

9,652

16%

34,204

29,712

15%

Mondrian South Beach – Joint Venture

(386)

(456)

-15%

106

277

-62%

Mondrian SoHo – Joint Venture

733

781

-6%

1,878

1,724

9%

Shore Club (3)

(84)

-100%

192

-100%

St Martins Lane food and beverage (4)

(238)

-100%

(238)

-100%

Sanderson food and beverage (4)

(40)

-100%

(146)

-100%

Las Vegas restaurant leases (5)

1,008

862

17%

3,267

1,630

100%

Ames (6)

0%

(95)

-100%

Other Hotel and F&B EBITDA

1,355

825

264%

5,251

3,344

257%

.

.

Total Hotel and F&B EBITDA 

$     12,562

$     10,477

20%

$     39,455

$     33,056

19%

 

(1) For joint venture hotels, represents the Company’s share of the respective hotels’ EBITDA, after management fees.

(2) Reflects the Company’s comparable owned hotels.  

(3) Effective December 30, 2013, the Company no longer had a meaningful ownership interest in Shore Club. Prior to December 30, 2013, the Company owned Shore Club through an unconsolidated joint venture in which the Company held a minority interest ownership of approximately 7%. The Company continues to manage Shore Club.

(4) The Company owned 100% of the food and beverage joint venture entity which leased and operated all food and beverage venues located at Sanderson and St Martins Lane.  MHG continued to own and operate the food and beverage venues at the hotels under a lease agreement with the hotel owner.  Effective January 1, 2014, the Company transferred all of its ownership interest in the food and beverage venues at St Martins Lane to the hotel owner.  The Company will continue to manage the transferred food and beverage venues. The Company continues to lease and operate certain food and beverage venues at Sanderson. Amounts presented represent the respective hotels’ food and beverage EBITDA, after management fees.  

(5) Reflects EBITDA from the leasehold interests in three food and beverage venues at Mandalay Bay in Las Vegas which the Company acquired in August 2012. The three venues were re-concepted and renovated and opened in December 2012, February 2013 and July 2013, respectively.  

(6) On April 26, 2013, the Company entered into an agreement with its joint venture partner pursuant to which, among other things, the Company assigned its equity interests in the joint venture to its joint venture partner. Prior to April 26, 2013, the Company owned Ames through an unconsolidated joint venture in which the Company held a minority interest ownership of approximately 31%.  Effective July 17, 2013, the Company no longer manages this hotel.  

 

 

Owned Hotel Room Revenue Analysis

(In thousands, except percentages)

Three Months

Nine Months

 Ended September 30,

%

 Ended September 30,

%

2014

2013

Change

2014

2013

Change

Hudson

$     17,676

$     17,360

2%

$     47,443

$     47,016

1%

Delano South Beach 

4,036

4,289

-6%

19,324

18,440

5%

Clift

8,936

8,301

8%

23,993

21,847

10%

Total Owned Hotels

$     30,648

$     29,950

2%

$     90,760

$     87,303

4%

Owned Hotel Revenue Analysis

Three Months

Nine Months

(In thousands, except percentages)

Ended September 30,

%

Ended September 30,

%

2014

2013

Change

2014

2013

Change

Hudson 

$     22,067

$     21,311

4%

$     60,999

$     57,461

6%

Delano South Beach

7,759

8,072

-4%

35,813

34,456

4%

Clift

11,736

11,596

1%

33,099

31,606

5%

Total Owned Hotels

$     41,562

$     40,979

1%

$   129,911

$   123,523

5%

 

 

Balance Sheets

(In thousands)

September 30, 

December 31, 

2014

2013

ASSETS:

Property and equipment, net 

$       281,316

$        292,629

Goodwill 

66,572

66,572

Investments in and advances to unconsolidated joint ventures 

10,492

10,492

Cash and cash equivalents 

96,284

10,025

Restricted cash 

16,234

22,144

Accounts receivable, net 

15,388

18,384

Related party receivables 

3,811

3,694

Prepaid expenses and other assets 

7,962

10,409

Deferred tax asset, net 

78,896

78,758

Investment in TLG management contracts, net

19,376

23,702

Other assets, net 

35,937

34,398

Total assets 

$       632,268

$        571,207

LIABILITIES and STOCKHOLDERS’ DEFICIT:

Debt and capital lease obligations, net 

$       673,638

$        560,751

Accounts payable and accrued liabilities 

38,642

41,627

Deferred gain on asset sales

127,403

133,419

Other liabilities 

13,866

13,891

Total liabilities 

853,549

749,688

Redeemable noncontrolling interest 

4,606

4,953

Commitments and contingencies

Total Morgans Hotel Group Co. stockholders’ deficit 

(226,279)

(183,924)

Noncontrolling interest 

392

490

Total deficit

(225,887)

(183,434)

Total liabilities, redeemable noncontrolling interest and stockholders’ deficit

$       632,268

$        571,207

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